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February 18, 2010

California blues

Certain politicians have taken on California's 39 percent health care rate hike as a populist cause. Dumb move, especially with Obamacare teetering on the brink. If (and I readily admit it's a big "if") the real story comes out, it'll be a gift to health care reform opponents.

What is it about California that makes it a target for WellPoint's greed? Does WellPoint, and its California subsidiary Anthem Blue Cross, just not like the state? Or are these rate hikes the cost of doing business in a state with a suffocating regulatory environment of which health care reform proponents wish to emulate nationwide--costs that are, of course, passed on to consumers.

Under federal COBRA rules, unemployed policyholders are allowed to keep their health benefits for 18 to 36 months after separation. But California goes one further, and bars Anthem from dropping these customers even after federal COBRA coverage runs out. According to the Wall Street Journal, California also caps what Anthem can charge these post-COBRA customers. The most damage, however, comes from monkeying with adverse selection, a lesson for those advocating for a prohibition on denials for pre-existing conditions (takes the pesky insurance portion of insurance reform).

"Most other states direct these [post-COBRA] customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance--leaving fewer customers to fund a more expensive insurance pool," according to the paper. "This explains why Anthem lost $58 million in California on its post-COBRA customers in 2009. If WellPoint didn't raise premiums amid these losses, it would soon be under assault from its shareholders, if not out of business." [Emphasis mine.]

As with the AIG debacle, populist sensationalism trumps facts, with Congressman Henry Waxman currently passing 'round the torches and pitchforks. With most of the media playing along, the aforementioned "if" just got a whole lot bigger.

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